Rangers' fall from grace leaves long list of victims

On Thursday, British Prime Minister David Cameron paid a visit to Scotland. At a press conference, held in camera-sight of Edinburgh Castle, the Tory leader made an impassioned plea for maintaining two venerable institutions with long histories and uncertain futures: the political union between Scotland and England, and Rangers Football Club.

The question of independence for Scotland won’t be decided until 2014 at the earliest, but the fate of the blue half ofGlasgow’s Old Firm is likely to be settled sooner than that.

Cameron said that he wants to see Rangers, which has entered administration, “survive and thrive”. That the very survival of a football team that has won over 100 trophies in its 139-year history is up for any debate — much less one involving the UK Prime Minister — reflects the depths plumbed by the Ibrox club last week.

The case involving Rangers is complex, and growing more labyrinthine with every passing day. Having entered administration at the start of the week, on Tuesday it emerged that the subject of the petition by Her Majesty’s Revenue and Customs (HMRC) against the club was not the huge historic tax bill — estimated at £49m — accrued under the stewardship of former chairman Sir David Murray, but debts accumulated by Rangers since the takeover by Craig Whyte in May 2011.
At the Court of Session in Edinburgh, the administrators installed at Rangers admitted that HMRC were concerned about “the non-payment of circa £9m PAYE and VAT” since Whyte took the helm at Rangers. Later in the week, it was revealed that a recent £24m loan made by ticket company Ticketus to the club, and mortgaged against future sales of season tickets, had passed through the books of another Whyte company, not Rangers’ accounts as the chairman had previously claimed.

The parlous situation at Rangers has its roots in two related but distinct factors: the massive debts built up by Murray, and the opaque dealings of current chairman Craig Whyte. It was Murray, a businessman whose wealth was estimated at £720m in 2008, who kick-started the debt-fuelled bubble in Scottish football that brought Celtic to its knees in the early 1990s.

Under Murray’s stewardship, Rangers invested big as players of the calibre of Brian Laudrup,Paul Gascoigne and, infamously for £14m, Tore Andre Flo graced Govan. At one stage, the club’s debts stood at a vertiginous £80m, bankrolled in the hope of European glory that never fully materialised. (Somewhat ironically, Walter Smith did achieve runner-up slot in the Europa League in 2008 on a veritable shoestring.)

When the tsunami of the global financial crisis hit, Murray, who had invested heavily in property and mining, was washed up. With Lloyds banking group demanding repayment of an £18m loan, there began a torturous search to find a buyer for the club. Despite being one of the most famous names in world football, no suitable candidate emerged until last year, when Motherwell-born businessman Craig Whyte took the club on for a nominal sum and a tax bill just shy of £50m.

“I think Whyte’s strategy all along has been to take the club into administration, to sink the club and relaunch it as ‘New Rangers’ free of debt,” says Tom English, chief sportswriter at Scotland on Sunday. Currently, Rangers is in the hands of Duff & Phelps — a firm that previously advised the club, and were appointed by Whyte who, as the secured creditor, retains significant control over the administration process.

If Rangers are to avoid the liquidation that many commentators now believe is Whyte’s desired endpoint, the club will need to agree a company voluntary agreement (CVA). “But the level of indebtness is so great that you would need HMRC and other creditors to agree to accept a couple of pennies in the pound at the very most,” says the administrator of Rangertaxcase.com, an investigative website that has been publishing details of the club’s murky financial affairs, including the £49m tax bill arising from David Murray’s ill-advised, and subsequently illegal, use of Employee Benefit Trusts (EBTs).

Whyte, as secured creditor, is protected to the tune of £18m: come what may, the current Rangers chairman, who was previously disqualified as a company director for seven years in 2000, will see a handsome return on his investment. But what happens to Rangers is less cut and dried.

Keen to send a message to the football world that paying tax is not an optional extra, HMRC are unlikely to accept a CVA that sees the taxpayer receive just a fraction of the debt owed. It would take a bid in the region of £70-£80m, way in excess of anything mooted so far, to reimburse all Rangers’ creditors.

What would the ramifications be for the green half of Glasgow if Rangers were to go the wall? Tom English believes that, whether they choose to admit it or not, both sides of the Old Firm are mutually dependent: “(If Rangers were gone) Celtic would win the league by huge margins every year. Player recruitment would suffer, the fans would get bored, Sky would definitely renegotiate the TV deal (the SPL’s £80m deal with Sky and ESPN is predicated on four Old Firm matches a season).”

It’s a point reiterated last week by Scotland’s first minister Alex Salmond. The ScottishNational Party leader said that Celtic and Rangers “need” one another. “The most die-hard Celtic supporter understands that Celtic can’t prosper unless Rangers are there,” he said.

The Celtic Park hierarchy poured scorn on Salmond’s comments, stating that any supposed reliance on their arch rivals was “simply not true”. However, many Celtic fans are more circumspect, fearful of the prospect an SPL without Rangers.

There is also a sense of deja vu among the denizens of Glasgow’s East End. Back in 1994, after years of trying to match Murray’s exorbitant spending at Rangers, the club were on the brink of bankruptcy before businessman Fergus McCann stepped in. McCann’s almost singular focus on building a sustainable football club at a time when Rangers were marching to a record-equalling nine SPL titles in a row prompted criticism from fans, but his approach has been vindicated.

More recently, Celtic embarked on a renewed austerity drive. Big-money foreign signings are out, young prospects with a high re-sale value are in. What rebuilding manager Neil Lennon has done has largely been funded by the sale of Aiden McGeady to Spartak Moscowfor £9.5m. On the very day Rangers were in court with HMRC, Celtic announced pre-tax profits for the second half of 2011.

While a McCann-style white knight is unlikely to appear on Rangers’ horizon, Rangers remains an attractive investment opportunity — if an agreement can be reached with HMRC.Andy Kerr, president of the Rangers Supporters Assembly, has called for a fan takeover of the club, citing the Barcelona model as an inspiration. Elsewhere, former Rangers directorPaul Murray is hoping to put a consortium together. Any prospective owners will have to buy Whyte out and settle a tax bill that some reckon could rise to as much as £75m including penalties. If Rangers really are “too big to fail”, the other option — allowing Rangers to liquidate and reform as a new club yet retain their SPL status — calls to mind another phrase made famous by the credit crunch: moral hazard.

Excessive borrowing fuelled Rangers’ success over the last 25 years, with HMRC used as a de facto private bank. Between 1999 and 2002, for example, the club spent over £50m in transfer fees. Rewarding such reckless behaviour would set a worrying precedent at a time when many clubs are struggling to pay creditors, the taxman among them.

The other alternative is bankruptcy for Rangers. Whether the SPL decided to reinstate the ‘new Rangers’, or, much less likely, to relegate the club to the bottom of the football pyramid, it would be the end of the SPL as we now it, at least in the medium-term.

Tom English finds no crumbs of comfort in Rangers’ current travails: “There won’t be any revolution in the game just because this has happened, just a lot of people losing out.”